online publishing

The value is in the reader’s Big Data

 

Why the right use of Big Data can change the economics of digital publishing. 

Digital publishing is vastly undervalued. Advertising has yet to fulfill its promises — it is nosediving on the web and it failed on mobile (read JLG’s previous column Mobile Advertising: The $20 billion Opportunity Mirage). Readers come, and often go, as many digital publications are unable to retain them beyond a few dozen articles and about thirty minutes per month. Most big names in the digital news business are stuck with single digit ARPUs. People do flock to digital, but cash doesn’t follow — at least, not in amounts required to sustain the production of quality information. Hence the crux of the situation: if publishers are unable to extract significantly more money per user than they do now, most of them will simply die. As a result, the bulk of the population — with the notable exception of the educated wealthy — will rely on high audience web sites merely acting as echo chambers for shallow commodity news snippets.

The solution, the largest untaped value resides right before publisher’s eyes: readers profiles and contents, all matched against the “noise” of the internet.

Extracting such value is a Big Data problem. But, before we go any further, what is Big Data? The simplest answer: data sets too large to be ingested and analyzed by conventional data base management tools. At first, I was a suspicious, this sounded like a marketing concept devised by large IT players struggling to rejuvenate their aging brands. I changed my mind when I met people with hands-on experience, from large corporations down to a 20-staff startup. They work on tangible things, collecting data streams from fleets of cars or airplanes, processing them in real time and, in some cases, matching them against other contexts. Patterns emerge and, soon, manufacturers predict what is likely to break in a car, find out ways to refine the maintenance cycle of a jet engine, or realize which software modification is needed to increase the braking performance of a luxury sedan.

Phone carriers, large retail chains have been using such techniques for quite a while and have adjusted their marketing as a result. Just for fun, read this New York Times Magazine piece depicting, among other things, the predictive pregnancy model developed by Target (a large US supermarket chain). Through powerful data mining, the rightfully named Target corporation is able to pinpoint customers reaching their third pregnancy month, a pivotal moment in their consuming habits. Or look at Google Flu Trends providing better tracking of flu outbreaks than any government agency.

Now, let’s narrow the scope back to the subject of today’s column and see how these technologies could be used to extract more value from digital news.

The internet already provides the necessary tools to see who is visiting a web site, what he (she) likes, etc. The idea is to know the user with greater precision and to anticipate its needs.

Let’s project an analogy with Facebook. By analyzing carefully the “content” produced by its users — statements, photos, links, interactions among friends, “likes”, “pokes”, etc. — the social network has been able to develop spectacular predictive models. It is able to detect the change in someone’s status (single, married, engaged, etc.) even if the person never mentioned it explicitly. Similarly, Facebook is able to predict with great accuracy the probability for two people exchanging casually on the network to become romantically involved. The same applies to a change in someone’s financial situation or to health incidents. Without telling anyone, semantic analysis correlated by millions of similar behaviors will detect who is newly out of job, depressed, bipolar, broke, high, elated, pregnant, or engaged. Unbeknownst to them, online behavior makes people completely transparent. For Facebook, it could translate into an unbearable level of intrusiveness such as showing embarrassing ads or making silly recommendations — that are seen by everyone.

Applied to news news contents, the same techniques could help refine what is known about readers. For instance, a website could detect someone’s job changes by matching his reading patterns against millions of other monthly site visits. Based on this, if Mrs. Laura Smith is spotted with a 70% probability to have been: promoted as a marketing manager in a San Diego-based biotech startup (five items), she can be served with targeted advertising especially if she has also appears to be a active hiker (sixth item). More importantly, over time, the website could slightly tailor itself: of course, Mrs Smith will see more biotech stories in the business section than the average reader, but the Art & Leisure section will select more contents likely to fit her taste, the Travel section will look more like an outdoor magazine than a guide for compulsive urbanites. Progressively, the content Mrs. Smith gets will become both more useful and engaging.

The economic consequences are obvious. Advertising — or, better, advertorial contents branded as such (users are sick with banners)– will be sold at a much higher price by the web site and more relevant content will induce Mrs. Smith to read more pages per month. (Ad targeting companies are doing this, but in such a crude and saturating way that it is now backfiring). And since Mrs Smith makes more money, her growing interest for the web site could make her a good candidate to become a premium subscriber, then she’ll be served with a tailor-made offer at the right time.

Unlike Facebook who will openly soak the intimacy of its users under the pretext of they are willing to give up their privacy in exchange for a great service (good deal for now, terrible in the future), news publishers will be more careful. First, readers will be served with ads and contents they will be the only ones to see — not their 435 Facebook “friends”. This is a big difference, one that requires a sophisticated level of customization. Also, when it comes to reading, preserving serendipity is essential. By this I mean no one will enjoy a 100% tailor-made site; inevitably, it will feel a bit creepy and cause the reader to go elsewhere to find refreshing stuff.

Even with this sketchy description, you get my point: by compiling and analyzing millions of behavioral data, it is possible to make a news service way more attractive for the reader — and much more profitable for the publisher.

How far-reaching is this? In the news sector, Big Data is still in infancy. But as Moore’s Law keeps working, making the required large amounts of computing power more affordable, it will become more accessible to publishers. Twenty years ago, only the NSA was able to handle large sets of data with its stadium-size private data centers. Now publishers can work with small companies that outsource CPU time and storage capabilities to Amazon Web Services and use Hadoop, the open source version of Google master distributed applications software to pore over millions of records. That’s why Big Data is booming and provides news companies with new opportunities to improve their business model.

frederic.filloux@mondaynote.com

Why Murdoch’s The Daily Doesn’t Fly

Is there a future for The Daily? According to last week’s reports by The New York Observer and The New York Times, News Corp’s “tablet newspaper” is on probation: Rupert Murdoch might pull the plug on The Daily which looses $30 million a year. But, in an open email to the publication’s staff, Jesse Angelo, its editor-in-chief, was quick to deny such rumors.

Eighteen months ago, The Daily was held up as embodying the newsmedia’s future. It was the first to be designed for the iPad, it bore the blessing of Steve Jobs himself (quite notable for someone who usually loathed the news sector), and it had the backing of the deep-pocketed News Corporation conglomerate. The project’s success would be measured over time (five years), supported by a considerable amount of funding. It had all it needed to be a success.

Fact is, The Daily never took-off. Six months after its high-wattage launch, it only claimed 80,000 paid-for subscribers. Today, Jesse Angelo mentions a mere 100,000 subs. It is both far from the 500,000 necessary to break-even and totally out of step with the growth of the iPad (and the iPhone, and the Android) installed base.

Something’s wrong with The Daily’s concept.

I subscribed. Twice, actually. At 99 cents a week ($39.99 a year), it was supposed to be a painless addition to my vast set of digital subscriptions. Strangely, it never succeeded in becoming part of my reading habits.

For The Daily, this might be its first problem: It is everything and nothing special at the same time. It’s not a tabloid, but it doesn’t carry in-depth, enterprise journalism either. It’s a sophisticated container for commodity news — i.e. the news that you can get everywhere, in real-time and for free. If I crave celebrity fodder, I go to TMZ or to the Huffington Post. If I want business news, I’ll find everything on CNN Money or Business Insider, all very efficiently and appealingly edited. No need to go through the tedious download of a 100 pages-plus issue.

The Daily’s inherent competition with the web (and mobile) was completely underestimated. Real time is now mandatory, so is the ability to generate conversations. For The Daily, a comparison of last weekend’s newscycle is cruel. Its coverage of the Mitt Romney tax return controversy triggered 179 comments on The Daily vs. 28,464 comments on the Huffington Post. (Note the HuffPo built it on a 150 words Associated Press story and a one minute video segment from CNN — that’s the digital version of the multiplication of the loaves…)

The Daily is like an old concept in a high-tech package. Some draw a parallel with USA Today, the first truly national newspapers launched in 1982. Two things made the paper a success:  its positioning as the first truly national newspaper in the United States, and its innovative format and layout; USA Today was designed for quick reads and explanatory journalism enhanced by graphics. That uniqueness was key to installing the paper America’s news landscape.

By contrast, The Daily does not enjoy the specificity of a “visually attractive convenience”. Its sophistication and its cognitive profusion lead to an excess of complexity which ends up leveling its content off. The Daily has no asperities, nothing to retain the reader’s attention in a recurring manner. A media is driven by its affinity for its audience. An intellectual, cultural or political affinity — or a combination of all three. The Daily lacks such engines. Even its Murdoch-induced anti-Obama stance fails to keep readers coming back.

Another key question for The Daily’s future pertains to its business model. On average, according to the Newspaper Association of America, 70% of the revenue of US dailies comes form advertising, and 14% of the ad revenue comes from digital. By any means, The Daily should have been loaded with ads. There is almost none. Including for the new “WKND” edition. This is worrisome: many papers draw a third or half of their revenue of their weekend editions. The per-copy price won’t help either. At 99 cents a week, it’s pocket change. After Apple’s 30% cut, this leaves less than 10 cents per issue. Even with a streamlined newsroom of 150, it can’t fly. (For more about The Daily’s economics, read Ken Doctor’s January 2011 Newsonomics article, or last week’s piece by Staci Kramer in PaidContent, both explain the issue pretty well.)

The Daily also illustrates the difficulty in building a digital media brand. Many tried, few succeeded. Slate, Salon, excellent as they are, journalistically speaking, never took off audience-wise. The Huffington Post made it through a unique combination of unscrupulous “aggrelooting” of contents from a variety of willing and unwilling sources, legions of unpaid bloggers, Arianna’s media footprint, and unparalleled audience-building techniques (see the previous Monday Note: Transfer of Value). A combination that proved very complicated to reproduce — even for someone as resourceful as Rupert Murdoch.

The Australian-born media mogul thought he could launch a new breed of news product from scratch. But in his quest for bold digital efficiency, he failed to see that a news product with no history, no breadth, no soul, no character could only face an uncertain future.

frederic.filloux@mondaynote.com

Transfer of Value

This is a story of pride vs. geekiness: Traditional newspapers that move online are about to lose the war against pure players and aggregators. Armed with the conviction their intellectual superiority makes them immune to digital modernity, newspapers neglected today’s internet driving forces: relying on technology to build audiences and the ability to coalesce a community over any range of subjects — even the most mundane ones.

When I discuss this with seasoned newsroom people on both sides of the Atlantic, most still firmly believe the quality of their work guarantees their survival against a techno-centric approach to digital contents.

I’m afraid they are wrong. Lethally so.

We are a facing a culture shock. On one side, legacy medias: Great franchises who grew on strong values, such as “pristine” journalism, independence, storytelling, fact-checking, solid editing, respect for the copyright… Along the way, they made their share of mistakes, but, overall, the result is great. After all, at the height of the Fourth Estate’s power, the population was better informed than today’s Facebook cherry-pickers.  Now, this (aging) fraternity faces a new generation of media people who build their fiefdom on a completely different set of values. For instance, the notion of copyright has become exceedingly elastic. A few months ago, Flipboard began to aggregate contents from French news organizations, taking large excerpts — roughly capturing the essence of a story — along with a token link back to the original content. Publishers sent polite letters saying, in substance: ‘Guys, although we are fond of your iOS applications, you can’t simply pick up our stuff without permission, we need to talk first…’

Publishers’ attitude toward aggregators has always been ambiguous. Google is the perfect example: on one hand, publishers complained about the search giant’s power; and, at the same time, they spend huge sums of money optimizing their sites, purchasing relevant keywords, all to make the best use of the very power they criticize. In Belgium, publishers challenged Google in court for the Google News product before realizing they really depended a lot on it, and begging for reintegration in the Google traffic cauldron.

Another example of the culture shock: reliance on technology. It’s a religion for the newcomers but merely a support function for traditional editors. Unfortunately, evidence shows how wrong it is to snub the traffic building arsenal. Here are a few examples.

On July 5th, The Wall Street Journal runs an editorial piece about Mitt Romney’s position on Obamacare.

The rather dull and generic “Romney’s Tax Confusion” title for this 1000 words article attracted a remarkable 938 comments.

But look at what the Huffington Post did: a 500 words treatment including a 300 words article, plus a 200 words excerpt of the WSJ opinion and a link back (completely useless). But, unlike the Journal, the HuffPo ran a much sexier headline :

A choice of words that takes in account all Search Engine Optimization (SEO) prerequisites, using high yield words such as “Squandering”, “Snafu”, in conjunction with much sought-after topics such as “Romney” and “Health Care”. Altogether, this guarantees a nice blip on Google’s radar — and a considerable audience : 7000+ comments (7x more than the original), 600 Facebook shares, etc.

HuffPo’s editors took no chance: the headline they picked is algorithm-designed to yield the best results in Google. The aggregator invested a lot in SEO tools: I was told that every headline is matched in realtime against Google most searched items right before being posted. If the editor’s choice scores low in SEO, the system suggests better terms. In some instances the HuffPo will A/B test headlines: It will serve different versions of a page to a couple of random groups and, after five minutes, the best headline will be selected. Found on Quora, here are explanations by Whitney Snyder, HuffPost’s senior news editor:

The A/B testing was custom built. We do not, however, A/B test every headline. We often use it to see if our readers are familiar with a person’s name (i.e. John Barrasso vs GOP Senator), or to play up two different aspects of a story and see which one interests readers more. We also A/B test different images.

Other examples below will prove the effectiveness of HuffPo’s approach. Here is a media story about a TV host whose position is in jeopardy; the Daily News version: a 500 words article that looks like this:

The Huffington Post summed it up in a 175 words form, but introduced it with a much more potent headline including strong, Google-friendly locutions:

Results speak for themselves:

Daily  News original version : 2 comments, 1 tweet, 1 Facebook share
HuffingtonPost version : 4601 comments, 79 tweets, 155 share.

Like no one else, the HuffPo masters eye-grabbing headline such as these :
Watch Out Swimmers: Testicle-Eating Fish Species Caught in US Lake (4,000 Facebook recommendations), or: Akron Restaurant Owner Dies After Serving Breakfast To Obama (3300 comments) or yesterday’s home: LEPAGE LOSES IT: IRS ‘THE NEW GESTAPO’ displayed in a 80 points font-size; this adaptation of the Maine’s daily Press Herald generated about 6000 comments on the aggregator.

The point is not to criticize the Huffington Post for being extremely efficient at optimizing its work. They invested a lot, they trained their people well. Of course, the bulk of HuffPo’s content  comes from : a) unpaid bloggers — 9,884 new ones last year alone according to Arianna’s count; b) content borrowed from others media and re-engineered by 170 journalists, a term that encompass various kinds of news producers and a bunch of true writers and editors; c) a small percentage of original reporting.  Each day, all this concurs to “over 1,000 stories published” that will translate into 1.4 million of Facebook referrals and 250,000 comments. Staggering numbers indeed. With some downsides, too: 16,000 comments (!) for an 200 words article about Barack Obama asking to turn off Fox News during a campaign tour is not likely to attract enviable demographics advertising-wise. The HuffPo might make a billion page views per month, but most of them only yield dimes.

The essence of what we’re seeing here is a transfer of value. Original stories are getting very little traffic due to the poor marketing tactics of old-fashion publishers. But once they are swallowed by the HuffPo’s clever traffic-generation machine, the same journalistic item will make tens or hundred  times better traffic-wise. Who is right?  Who can look to the better future in the digital world ? Is it the virtuous author carving language-smart headlines or the aggregator generating eye-gobbling phrases thanks to high tech tools?  Your guess. Maybe it’s time to wake-up.

frederic.filloux@mondaynote.com

Off The eBook Shelf

Readers are voting with their wallets: The eBook is winning. In the US, eBooks sales are now topping hardcovers for the first time (story in TechCrunch). Not everywhere of course. According to the Bowker Global eBook Research, the global market for eBooks is driven — in that order — by India, Australia, the UK and the United States. The laggards are Japan and (no surprise) France. The chart below shows the percentage of internet population reporting the purchase of a digital book over the last six months prior to the survey.

Interestingly, for most population samples, the level of purchases is not correlated with awareness. France enjoys the highest level of awareness but its internet population buys five times less eBooks than India’s. Once an Indian internet user finds an attractive digital book offer, he/she will most likely jump on it. This could lead to the following: in emerging countries, the cellular phone has become the main communication tool, leapfrogging the deployment of land lines; similarly, we could see eBooks bypassing print in countries like India where a large segment of the population is getting both literate and connected at a fast pace. (Actually, Bowker also reports that over 50% of respondents in India and Brazil are likely to buy an eBook in the next six months, ten times more than in France.)

If the rise of the eBook happily provides access to knowledge in emerging countries, the picture is more contrasted in countries with a long history and high penetration of printed books.

For instance, let’s have look at the ISBN registrations data for the United States. The chart below, drawn again from Bowkers (full PDF table here) shows a steady progression:

Between 2002 and 2011, in the US market, ISBN registration grew by 61% and reached 347,178 new titles. (A technical note: I’m only taking into account books that fall in an identified category, such as Arts, Biography, Business, etc. I’m excluding the huge segment labeled as nontraditional, which includes reprints, public domain, and titles printed on demand; this segment grew by over 3500% to 1.2 million registrations, which would distort the picture.)

We clearly see the impact of mainstream e-readers such as the Kindle and the iPad. Without any doubt, they contributed to the growth of registrations. (Unfortunately, ISBN counts does not provide a breakdown between print and digital.) Over the last nine years, some book publishing segments fared better than others. See the chart below:

Fiction is doing twice better than all other categories together. The Digital Book is the medium of choice for fiction: a) eBooks are set to be cheaper that print and price elasticity is now a proven fact, the cheaper a book is, the more likely a reader is to try it; b) e-commerce breeds impulse buying (cf the famous “One-Click® feature); c) readers can test the product more efficiently than in the printed world as Amazon and the iBooks Store make larges sample available for free. No surprise, then, to see the Fiction category holding well.

No surprise either in seeing the three worst performers also as prime victims of the digital era. History books have to compete with the vast trove of material available on the web; that’s the Encyclopaedia Britannica syndrome, going out of print after 244 years of duty, demoted by the 11-year-old Wikipedia. Like it or not, most history books publishers will follow the same fate.

Similarly,Travel and Computer books are in direct competition with mostly free online services. Who will buy a “how-to” computer book today? There are plenty of video tutorials explaining how to replace a hard drive or how to struggle with Photoshop? And let’s not even mention the Travel segment with tons of guides, reviews, price comparators and transactions services. As for the language sections of the bookstore, again, a simple query in Google can help with spelling, translation and grammar… Even the precious Roget’s Thesaurus is online, and rather efficiently so. I’ll just venture French Canadians did Roget one better: A company called Druide publishes a suite of applications for PCs, tablets and smartphones called Antidote. It’s an unusually clever combination of dictionary, thesaurus, quotations, etymology and more. I wondered for a while about the name Antidote — until I realized Quebecois saw the product as an antidote to… English. An old struggle.

The main eBooks casualty is likely to be bookstores. In a city like New York, in the Fifties, about 330 bookstores were in business. Now they are down to 30 or even less, laments André Schiffrin, former head of Pantheon Books, in his recent book Words & Money. Countries like France or Germany have laws that protect independent bookstores: From Bordeaux to Berlin, citizens are thankful for finding warmer and more relevant recommendations than the algorithm-based suggestions provided by Amazon. But how long will it last?

frederic.filloux@mondaynote.com

Advertising: The trust Factor

The digital advertising equation is outlined in the Nielsen graph below. The Global Trust in Advertising survey released this month (summary on Nielsen site and PDF here) underlines one key finding: For the vast majority of digital users, trust lies first and foremost in recommendations and opinions from their peers. As for the bulk of formats found on web sites or on mobile (such as various flavors of display advertising), they fall to the bottom of the chart. Nielsen’s study, based on 26,000 respondents in 56 countries, was conducted in Q3 2011.

Here are the expanded results (click to enlarge):

By themselves, these figures provide the perfect explanation for the current state of the advertising industry and, more specifically, for the digital ads segment.

Then, superimposing the ad revenue structure of most news medias companies would show an alarmingly symmetry: these businesses derive most of their revenue, allocate most of their effort to the least trusted ad vectors: display banners of various forms (on web, mobile or social), online video ads, etc.

The survey also provides a grim view of what people trust: they put more of their faith in a branded website (58% positive), a brand sponsorship (47%) ad, or even a product placement in a TV series (40%) than in a display ad on a website or on mobile (33% each)!

Even worse is the general distrust of advertising: on this list of 19 ad vectors, only 5 are are trusted by 50% of the respondents.

Let’s focus on a few items:

Recommendation from people I know: Trusted: 92% Not Trusted: 8%
Consumer opinions posted online: Trusted: 70% Not Trusted: 30%
Problem is: traditional medias don’t own these two segments. Social networks and consumer websites do. It’s a key Facebook’s strength to have people engage in conversations around brands and products. (IMO: a pathetic waste of time). Interestingly enough, the social network environment doesn’t boost the despised banners that much: When served on a social network, banners gain a mere 3 percentage points (at 36%) against a plain website or a mobile context. This must be a matter of concern for Facebook’s revenue stream: its unparalleled ability to pinpoint a target doesn’t raise the level of trust.

Editorial content such as newspaper articles. Trusted: 58%, Not trusted: 42%
Not surprising, but worth a bit more thought. It pertains to the level of trust readers put in the medium of their choice — carbon or bits. As expected, a fair and balanced product review written by a non-corrupted journalist (every word in the sentence counts) will be trusted. That’s what I call the Consumer Reports syndrome. This organization deploys 100+ professionals testers — and no ads beyond the ones for its own paid-for services and extra publications. Among its enviable base of 7 million subscribers, half pay $6.95 a month (or, a much better deal, $30 dollars a year) to access ConsumerReports.org — this is good ARPU compared to other digital medias who only make a few bucks per year and per viewer in advertising revenue.

What does this mean for online outlets? They should consider beefing up the volume of product reviews, while preserving the reliability of their coverage. This also raises the question of the separation between journalism, advertorial and plain advertising. By no means should a publisher accept blurring the lines: beneficial on the short term but damaging on the long run. Having said this, when I see a growing number of anglo-saxons magazines making big money from high quality advertorials, I tend to believe online medias should consider sections of their websites or applications harboring such content. But two requirements need to be met: (again) no confusion whatsoever; and editorial standards for what will indeed carry commercial content, but in a well-designed, informative, visually attractive package. One important point to keep in mind: this type of service is typically out of reach for a Facebook, a Google or a Microsoft. But moving in such a direction requires unified thinking between publishers, the sales house (and the ad agencies they are dealing with) and the editorial team. A long way to go.

Ads served in search engine results:  Trusted: 40% Untrusted: 60%
Speaking of Google, here’s another interesting finding in the Nielsen survey: by and large, readers doesn’t trust search ads. To many viewers, text ads popping up on pages, on YouTube video or on emails, are seen as intrusive and irrelevant (to say the least: look at this hilarious site featuring inappropriate ad placements.) Still, search ads account for about 60% of online ad revenues. Why? Essentially because it provides a cheap, convenient, and totally disintermediated way of promoting a product. On this count, Google makes no mystery of its intention to vaporize the advertising middleman thanks to its superior technology.

The digital advertising party is just warming up. The business will continue its ongoing transformation. Currently, digital accounts for 16% of the global ad spending. It is likely to gain 10 more percentage points over the next five years. Not all markets nor products carry the same potential: According to the Financial Times, Unilever currently spends 35% of its US budget on digital, compared with 25% in Europe and only 4% in India. For news medias, the opportunity is that brands and agencies are still searching for the right formula. Brands face an incredibly complex challenge as they have to play with many dials at the same time: traditional ads, digital, web, mobile, apps, social, behavioral. And all are tightly intertwined, creating flurries of new metrics: ROI naturally, but also engagement, sentiment, feelings.

Like elsewhere in the digital world, the most successful players will be the genuine tinkerers. Software giant Adobe is said to spent 20% of its digital budget on experimental campaigns. They test, measure, adjust and iterate.

It is up to digital medias to go from passive to active in the quest for the right model. Their economics depend on it.

frederic.filloux@mondaynote.com

NYT Digital Lessons

The New York Times Company’s latest quarterly numbers contain a rich trove of data regarding the health of the digital news industry. Today, we’ll focus on the transition from traditional advertising to paywall strategies being implemented across the world. Paywall appear as a credible way to offset — alas too partially — the declining revenue from print operations.

First, the highlights.

(See NYTCO’s press release here and stock here. Unless otherwise stated, all figures are for Q1 2012 and comparisons are Q1 2012 vs. Q1 2011.)

  • Total Revenue is stable at $499.4 million.
  • Operating profit is down by 23% at $19.6 million. When excluding depreciation, amortization and (generous) severance packages, OP is up 9.4% at $57 million.
  • Print advertising for all properties and from all sources is down 8.1% at $238 million
  • Circulation revenue is up 9.7% at $227 million.
  • Digital subscriptions, launched just a year ago, reach 454,000. That’s a 16% growth vs. Q4 2011.
  • Digital advertising for the entire NYTCO (this includes NYTimes.com, BostonGlobe.com, Boston.com, About.com, etc) is down 10.3% to $71 million.
  • Such decrease is primarily due to About.com losing 24% of its ad revenue to $22.6 million, and 50% of its operating profit to $7 million. This online guide is entirely dependent on advertising.
  • But the real bad news is the decline in digital advertising for the NYT News Media Group  consisting mostly of the NYT and the Boston Globe. Revenue dropped by 2.3% to $48.5 million for the quarter.
  • Digital advertising accounts for 22.5% of the entire NYTCO ad revenue, and for 30% of the NYT News Media Group’s digital advertising revenue.

We can discern four trends:

#1:  Digital advertising is struggling, even for a major brand such as the New York Times.
Again the evolution :
FY 2010: +18%
FY 2011: +10%
Q1 2012 (Y/Y):  -2%

This confirms a much feared trend. By and large, in a news context, the performance of digital advertising is on the decline. All indicators are now flashing red: CPM (cost per thousand impressions), cost per click, volumes, yields, etc. The cause is well-known, and way more acute for digital than for print: ads and news contents do compete for the same eyeballs. The more attractive and eye-catching the content is, the lesser the ad yields. Behavioral advertising won’t change that much — at least for hard core, high value-added news environment.

This decline also announces a major shift in the way ads are sold. The advertising flow is likely to split: premium ads such as well-placed special packages will still be sold for high prices by in-house teams. But the bulk of the inventory will shift downward to bazaars in which gazillions of pageviews will be dumped into real-time exchanges supposed to optimize prices. The bad news: such schemes are likely to fuel deflationary trends for remnant (i.e. sub-premium) inventories. The good news: media organizations such as online news outlets or pure players are likely to join such marketplaces and perhaps gain an operating role of sorts — assuming they are smart enough to cooperate (I’ll address this in an upcoming column).

#2 Paywalls work. With roughly half a million paying subscribers, the NYTimes.com has captured the equivalent of 39% of its weekday print circulation of 1.3 million. In its financial statements, the Times doesn’t break down its revenue structure, but a significant part of the 13% increase in circulation revenue (print + digital) is attributable to digital subscriptions (the rest comes from the recent print price hike).
Estimates are difficult but here are some clues: on these 500,000 digital subs, it is estimated that 60% pay the basic $15/mo rate while 40% opt for the full $35 digital package. This would translate to digital subscribers contributing $34.5 million (18%) to the $190 million in NYT Media Group circulation revenue that appear in its quarterly statement. 18% is not that bad for a paywall that is barely one year old (even though this estimated revenue doesn’t reflect the cost of the NYTimes’ massive promotions for its paywall program). But again, compared to the $48 million of digital advertising, it is significant.

#3 A warning to paywall dreamers: some restrictions apply. In order to be successful, a digital subscription must check the following boxes:
Own a sizable share of a given (and preferably solvent) segment of the population. In other words: start from a large built-in audience. Globally, the New York Times has about 34 million unique visitors per month – a large pool for conversions to the paywall.
Don’t expect a paywall to work for a small site or a niche product — unless it is a reference for its community. Even then, in spite of its reference status in New England, the Boston Globe shows a mere 18,000 paid-for digital subscribers.
– Allow time to grow the subscriber base. A paywall strategy must spread over several years. The free audience first has to be converted into registered users able to be thoroughly data-mined; then the paywall will be tightened with less and less articles available for free (the NYT recently lowered its threshold from 20 to 10 free articles); the entire process will take at least two to four years, depending on where you start from.
– Carefully manage porosity. That’s why some people refer to a “semi-permeable membrane” (see the interesting conversation between Clay Shirky and NYT’s Digital manager Denise Warren on NPR last January). While it is tightening its paywall, the NYT leaves willingly plenty of free access to its content: if you land its site from a search engine, from Facebook, Twitter, or from a blog, no limit applies (same for the FT.com, actually). Such tactic has two virtues: it doesn’t affect natural referencing and incoming traffic from search engines (which could weigh as much as 30-40% of the audience), and the brand remains exposed to many — such as social networks users.
– Quality is non-negotiable. A successful paywall requires exclusive, unique, authoritative, high-quality content. A paywall isn’t the right solution for streams of “commodity news” or user-generated contents. It won’t work for the Huffington Post. Despite its enormous audience, the HuffPo’s embryonic original content won’t do much to alter its “Left wing Fox News” positioning (Even though the HuffPo managed to score a Pulitzer Prize for National reporting for its remarkable Beyond The Battlefield series.)

#4 Print is still alive. While print advertising is drying up, the share of circulation revenue keeps rising (in relative terms.) The good news: price hikes don’t seem to matter: the recent increase to $2.50 had no effect on sales. Actually, the Times uses its weekend edition (priced at $5.00) to channel digital subscriptions by providing the best deal of its complex rate card. Which leads to two conclusions: a sizable reservoir of readers is ready to pay for quality-on-paper at almost any price (see a previous Monday Note Cracking the Paywall); and commercially strong weekend editions can be a potent vector for digital subscriptions.

Print and digital strategies are more intertwined than ever.

frederic.filloux@mondaynote.com

Culture Shift: User To Client

Fifteen years ago, Louis Gallois, the SNCF (French Railways) chairman decided to change the company’s lexicon: passengers were to be referred to as “customers” instead of the old bureaucratese “users” (in French: “clients” vs. “usagers”). The intent was to convey notions of choice and consideration for the rider. This being France, the edict led to convoluted debates. The upper management old guard held the company was on its way to betraying its traditional mission of service public. Unions—notoriously opposed to any forms of competition threatening their fiefdoms—saw the new word as a portent of evil mercantile designs. In Louis Gallois’s mind, a clientele should not be seen as captive herd but ought be shown respect and empathy. It took more than a decade to see the French railway system become more customer-oriented. The French Postal service underwent a similar transformation—largely under pressure from internet-based services. Today, when compared to most other countries, these companies have become good performers.

Back to my media beat, you see where I’m going: The transforming media industry is still stuck into a user’s culture. Media companies still believe this: One way or another, they own their readers (or viewers and listeners). Of course, this belief is not evenly shared among different corporate layers. In the C-suite, the comfy old view is long gone as numbers confirm, quarter after quarter, the industry’s slump. Most executives share a sense of vital urgency. But the deeper you dive into those companies, the more you see complacency still lurking.

As long as the old media culture still dominates and resists change, better business models won’t be able to gain traction.

It all boils down to a simple market place evolution.

In the pre-internet era, the media sector lived by its own rules: a captive audience left with no other choice but a bunch of well-entrenched media outlets. At the time, these companies didn’t feel the need to probe their audiences, let alone to market to them. People were listening, viewing, and reading, roughly at the same rate, year in and year out. Editors and publishers felt immune to any form of challenge. Newsrooms were a great place to be, filled with witty, smart people, most of them notoriously unproductive, but great to hang out with, caring very little care for the user’s state of mind.

Then, the digital wave unfurled. With it came a new business culture, completely antinomic to the legacy media’s thinking. At first, the tech/startup way of doing things was dismissed as a freakishly geeky and completely inapplicable to media organizations.

Then the two spheres—the new entrepreneurial culture and the old one— got closer and closer and began to intersect. The overlapping zone was, precisely, digital information. It began in chaotic but participatory (massively) and profuse ways. This led to the rise of “commodity news”—whose value evaporated in the process—at the expense of the original (and traditional) news sources that were slow to understand the scope of the upheaval. This put a brutal end to the widespread old complacency.

As the user morphs into a customer, s/he becomes more demanding of its media provider. There is a reason for that shift: a magazine subscriber is also an Amazon patron and s/he now expects the same level of service. Instead, for most magazines, it still takes 3-6 weeks for a monthly print subscription to start.

Today, the media industry must change its reference system. Every single day, traditional-media-in-transformation collides with companies (pure players, aggregators, portals, search engines, mobile applications, retailers, distributors) built on very different, opposed sometimes, values and principles. As a result, the competition on products (and audiences) leads to a competition on the processes of building and marketing these products.

This can be summed up to three notions.

The Customer (again).  He (she) is no longer a well-defined monolithic individual. Consider the structure of a digital audience: news consumption is scattered all over the day with different size and shapes. This should impact the way news is packaged. Most newsrooms are currently unable to adapt to the time-sensitive diversity that has become expected. Too many newsrooms don’t understand their output should be reformatted, re-edited, for different uses, at different times of the day, on different devices.

Competition / Speed => Leading the pack. The media business is now intensively competitive. Newsrooms should be obsessed with beating the competition in every possible way, exactly in the same fashion a tech company is constantly rolling-out new features for an application or a service. Unfortunately for the slowest and the weakest, the media industry is migrating to a “winner-takes-all” system, with very little oxygen left to the lower tier.

Responsibility / Empowerment / Focus => Better Execution. This implies two moves: First, a complete overhaul of the HR culture. The old media culture is plagued by poor accountability and dilution of responsibility. It’s time to shift to one project (or one segment of the business) = one Direct Responsible Individual, meaning true delegation, a clear mission, and the sanction (positive/negative) that goes with it. Two, it involves a change in the compensation structure, until then dominated by guild-management negotiated agreements that abhor genuine meritocracy. Again, the technosphere teaches us the benefits of the opposite: a human management system able to attract, retain and promote talented people. The combination of responsibility and reward (not only financial) is a non-negotiable requirement for better execution.

Before going back to spreadsheets and corporate dashboards, all the boxes above must be checked. Vaste programme.

frederic.filloux@mondaynote.com

Ebooks and Apps, same challenges

(Second of a series)

Last week, we looked at the ebook’s Giant Disruption. A new ecosystem in which Amazon eats publishers’ and agents’ lunch by luring authors into self-publishing.

Today, we examine the new regime’s impact on book-making and distribution processes.
The outcome will surprise few readers: Over time, the new book publishing business will look more and more like the software industry.

1/ Managing abundance. Traditional publishing’s most salient feature is the maintenance of high barriers to entry. The journey from manuscript to bookstore is an excruciating one. Publishers are deluged with books proposals; a quick glance at a few pages and the bulk of submissions is rejected. Still, far too many books get published. Several Parisian booksellers told me they sometimes have to return unopened boxes of books to distributors, simply because they don’t have enough space for them. Therefore, the 80/20 rule applies: most of the revenue comes from a small assortment of books. Digital publishing removes those barriers –brutally so: the floodgates are now indiscriminately open to every aspiring writer. This will have two effects: more difficult choices for the reader (see Barry Schwartz TED’s talk on The Paradox of Choice) and, on average, lower quality products.

Overtime, two factors will help solve the problem of the choice: search engines and manual curation. As semantic search rises, books content gets treated like data, searchable not only by words clusters, but by variations of meaning, pitch and, at some point, style. Put another way, a search engine will soon be able to differentiate and to attribute texts written by two novelists working in the same segment of literature.
Such breakthroughs will impact recommendation engines systems that already act a serious sales booster. Again, tech companies, such as Amazon (more than Apple, which does not seem to “get” search) will ride the wave thanks to their past and future investments into search and data analytics.

Semantic recommendation engines won’t kill the need for human curation. Like the app business where abundance creates a need for more human-powered guidance and suggestions (see Jean-Louis’ idea of a Guide Michelin for Apps), book sections of magazines and newspapers will have to adapt and find ways to efficiently suggest e-readings to their audience.

2/ The need for editing. The most potent selection tool will remain the quality of the product. In the iPhone/iPad AppStore, Apple guarantees the overall technical quality of what lands on its shelves. Apple’s primary motive is to avoid poorly coded apps that crash or, worse, interfere with the inner core of the iOS. No such things on Amazon. Once a manuscript is properly formatted (not very complicated), it’s eligible for sale. That’s where reality barges in. Many self-published authors insouciantly flog texts replete with grammatical errors and typos. Very few seem to rely on proper editing and proofing, this is the main divide between amateurs and pros. Editing is both a mandatory and costly process — but worth every penny. It is probably the most critical part of the value added by traditional publishers. In the digital world, it must remain a key component of the process.

3/ Segmented manufacturing. Self-published ebooks won’t escape the laws of digital economics, of decentralized and specialized crafts. Here again, ebooks publishing and the making of applications converge. The entire process will be handled by dedicated freelancers focused on specific tasks: manuscript formatting (easy for text, but complicated otherwise); cover design — it will become more important as digital bookstores gain in sophistication; editing and copy-proofing the manuscript by a competent and well-paid professional, etc.

At a higher level of complexity for a book production (rich media contents, interactive learning features and more), two forces will kick-in: cloud computing and offshore outsourcing. The most recent example is the San Francisco-based startup Inkling: last month, the company made its own cloud publishing setup Habitat available to the general public. It went a step further by relying on companies such as Aptara, a US corporation with the bulk of its 5000+ workforce located in India. Note that Aptara is a contractor for almost all traditional publishing houses such as Hachette Livre, Pearson, Oxford University Press… Inkling will bypass publishers by connecting customers and contractors through a collaborative platform that provides highly sophisticated correction and versioning tools. It is no incident that Matt McInnis, Inkling’s CEO, is an alumnus of Apple’s education division, as told in this recent Bloomberg BusinessWeek story.

Ebook publishing is often linked to value depletion for the entire food chain. Ebooks obey the other digital law: low price, high volumes. In this case, extremely low prices. But evidence shows professional authors can find their way in the new world.

Take thriller author and self-publishing advocate Joe Konrath. His blog is a well-documented plea for getting rid of what he calls “legacy publishers”. A year ago, he posted a 13,000 words dialog with his pal Barry Eisler. Eisler, is a former CIA operative; at the time, he was making headlines for turning down a $500,000 deal from his traditional publisher and taking the self-publishing road instead. I recommend reading their conversation, especially when the two discuss business strategies, such as the time-to-market problem:

— Barry Eisler: [Time to market]  was one of the reasons I just couldn’t go back to working with a legacy publisher. The book is nearly done, but it wouldn’t have been made available until Spring of 2012. I can publish it myself a year earlier. That’s a whole year of actual sales I would have had to give up.
— Joe Konrath: We can make 70% by self-publishing. And we can set our own price. I have reams of data that show how ebooks under $5 vastly outsell those priced higher.
— Barry Eisler: This is a critical point. There’s a huge data set proving that digital books are a price-sensitive market, and that maximum revenues are achieved at a price point between $.99 and $4.99. So the question is: why aren’t publishers pricing digital books to maximize digital profits?
— Joe: Because they’re protecting their paper sales.
— Barry: (…) Fundamentally, it’s extremely hard for an industry to start cannibalizing current profits for future gains. So the music companies, for example, failed to create an online digital store, instead fighting digital with lawsuits, until Apple–a computer company!–became the world’s biggest music retailer.
— Joe: I was in love with the publishing industry. It was my dream to land a Big 6 deal. And I still believe the industry is filled with intelligent, talented, motivated, exceptional people. I’m grateful to have sold as many books as I did (and continue to do.) My switch to self-publishing isn’t personal. It’s just business. I can make more money on my own.

For context, among tons of books Joe Konrath wrote, one, The List, was first rejected by a New York Publisher in 1999. In April 2009, he self-published it on Amazon for $2.99 and sold a first batch of 25,000 copies. Then he took the price further down (!) and had sold 35,000 copies at the time of the interview (March 2011). Today, The List is now available on Amazon for $11.97 (paperback, 310 pages) or $4.01 in Kindle format.

Before wrapping this up, I’ll answer a Monday Note reader who asked what would I do if I had to publish a book today. Like most journalists, I’m not short of ideas; my two most advanced projects are a global techno-thriller and an essay about internet economics. (Because of my day job, they are likely to stay untouched for quite a while…)
To me, it’s a no brainer: I’d go digital, especially if I publish in English.
Among the reasons:
Time to market: I’m not exactly the patient type who’ll wait for a release window that will fit my publisher.
Pricing: I’dont want to compete against well-established authors releasing their opus in the same format for the same price. Mine has to be lower.
Size and scope: I want to be able to publish a book with a number of pages based on the subject’s scope, as opposed to antediluvian dictates saying books should have x hundreds of pages.
Updating capabilities: for a business book, being able to quickly make a new version with fresher data (or thoughts) is a must.
Control: I like the idea of picking the professionals who will help me with editing and design; no such freedom with a traditional publisher. Same for marketing and promotion; there, given the level of frustration I often see authors endure, I’d rather go by myself, or hire the right person to do it.
Permanence: an ebook never dies; it’s as easy to find as a new release in digital bookstores. Great for personal branding.
Revenue: I’d rather bet on volume than on a small number of high-priced copies.

But I still might print a small limited edition on dead trees. Because despite all rationale I’ll always love paper books.

frederic.filloux@mondaynote.com

Blog Strategies

How should large media organizations handle their blogs? As editors struggle to increase their news coverage, to generate the indispensable serendipity and raise the “fun side” (much needed for legacy media that are often too stiff), how do they strategize their use of blogs? For an online media, is there an optimal number of blogs to carry? Should editors adopt a Mao Zedong “let thousands blogs blossom” posture? Or, on the contrary, be rigorously selective?

Unsurprisingly, there is no easy answer, no one-size-fits-all strategy.

A note before we dive into the question: I choose to set aside independent professional bloggers. This is no reflexion on the quality of their work: it is often excellent, and sometimes better than what traditional media blogs offer. But I want to narrow the scope of this column.

When asked to explain what a legacy media blog should be and how it should relate to the general newsroom-produced content, I venture into the following set of requirements (in no particular order):

A Byline. Because the power of a media is often associated with the trust placed in it, readers tend to connect with “their” columnists. Moreover, the writer should provide more personal content, quite different from his/her “official” production (columns, editorial, analysis, opinion page).

Dedicated writing style. In a blog, no one wants (or expects) to find pontification — even by a celebrity author. A blog is an ideal fit for first person accounts and, if not for completely untrammeled stream-of-consciousness writing, at least for a good measure of casual, intimate stories.

A good example is Nobel Prize for Economics Paul Krugman in the New York Times: he combines a great byline, specific writing and a clear-cut editorial distinction. His weekly  column is, as expected, a neat and insightful production. And his blog, The Conscience of a Liberal, checks all the boxes. (In addition, Krugman — who builds his content without anyone’s help by adding photos, charts and video all on his own — is quite prolific: he wrote 21 posts over the last seven days!)

A concept. I always liked former Vanity Fair and New Yorker editor Tina Brown‘s phrase about the key attribute of a good story: it must be “high concept”, she said, i.e. reducible to one sentence. This property, often ignored or downplayed by editors, is at the core of our business and must also apply to blogging: if the writer’s blogging intention cannot be boiled down to a straightforward idea, maybe the idea needs rethinking.

An insider’s view. Many blogs are valued because their authors are so specialized they border on being insiders. Their access, their expertise give them plenty of material that won’t find its way into the main site structure but is a great fit for a blog. See the Guardian Defence and security blog or, on the same subject, Wired’s Danger Room or, on legal affairs, the excellent WSJ.com Law Blog.
More broadly, behind-the-scenes blogs, or reporter notebooks often produce good results. Foreign correspondents are usually the first to use the blog medium. To them, blogs are the ideal vector to write about campaign-trails, being immersed in a remote place or group, with first-hand “you are there” accounts.

An ultra-sharp angle. Blogs are good vectors for ultra-specialized views or angles. To name but a few:  The Numbers Guy in the Wall Street Journal pores over statistics, or FT’s Datablog on data-driven journalism. For lighter fare, let’s mention WSJ’s  Heard on the Runway about fashion (one of the most viewed), or WSJ’s Juggle on “choices and tradeoffs people make as they juggle work and family”.

What a blog shouldn’t be: a dump of disorderly news contents belonging to established home page sections, random bursts of disorganized thoughts, or a receptacle for journalists’ frustrations. As for the question of collective blogs vs. individual ones, I favor the individual blog: better gratification for the writer and, for management, more accountability and quality control.

Let’s now turn to metrics. Is there a rule of thumb for the quantity of blogs a news media should host?

I live and work in France where newsroom managers tend to be lax on blogs, and writers are quite voluble. The result is a record high number of blogs. To take one example, Le Monde hosts 61 blogs manned by its own staff, 26 guest blogs, and they select 30 readers’ blogs out of… 753 blogs “updated over the last 60 days” (this is more a page view strategy than an editorial one). All strong newsrooms, such as Le Monde or other prominent French newspapers, host great blogs. But, for all of them, the audience structure is a classic “20/80”, one in which a small fraction of the blog production makes the bulk of the audience. I don’t see the point in such a long tail, especially since advertising tends to price blogs at the very low end of their rate card.

Here are some numbers based on my analysis of publications I read on a regular basis:

– New York Times : 68 blogs. Its Blogs Directory shows the best possible arrangement. Those guys clearly believe in the blog medium and their news staff of 1200 provides great quality and a good mix between serious and more entertaining fare. Some are more than mere blogs: the excellent Dealbook, manned by a staff of 16, is more like a business site than a blog. Or Lens is my favorite spot for photojournalism as it rises above the level or an ordinary blog.

– The same goes for The Guardian (61 blogs) whose newsroom seems to enjoy manning its own blogosphere. Their baseline says it all: “The Sharpest Writing, the Liveliest Debate”.(Plus, OK, The Guardian hosts a small set of independent blogs such as The Monday Note…)

– High on the score (quantitatively speaking) is the Washington Post (102 blogs), with a weird focus on religion thanks to an ecumenical catalog of 13 blogs.

– WSJ.com has 54 blogs, officially. Plus what looks like a cemetery of 45 more. On the WSJ.com blogs home page, click on the Most Popular or Commented and the Latest; you’ll see which ones are the most active (Washington Wire on politics and the entertainment blog Speakeasy). This should make business pundits even more modest…

A random sample shows that a large number of blogs doesn’t equate with great quality. Too many blogs hosted by large media brands seem loose or rarely updated. That’s why a few specialized outlets prefer to focus on a small number of blogs: the FT.com (only 14 blogs) or the Economist (23 blogs) have opted for a selective approach — which more often ensures a better execution overall.

frederic.filloux@mondaynote.com

Refining the Model

Let’s come back to the business model question. My January 15 column featuring a Simple Model for digital newspapers triggered a number of emails and comments, many  questioning my assumptions (my thanks to readers of the Monday Note who take the time to make insightful contributions to the discussion).

Let’s see if we can sort through the questions and come up with a few helpful answers.

1 / Advertising revenue. Let me set the backdrop here. My model projects what I’ll call a mature market. First and foremost, time spent vs. ad spending for print, web and mobile, which currently looks look this…

Source: Internet Trends, Mary Meeker, KPCB Oct 2011

… will have morphed into a graph showing more balance between categories. In my projections, ad spending converges to time effectively spent on various medias. Also, we’ll see a sharp rise of the mobile segment, and a sub-segment made by tablets will carry its specific business model (apps, subscription, ads).
This will happen at the expense of the print media, a sector that, considering the time people now spent on it, is still vastly over-invested. Dailies are bound to suffer more than weeklies (or Sunday editions) because their primary function (delivering news) collides with mobile devices. Having said that, newspapers will survive (after further shrinkage) thanks to an unabated base of loyal readers ready to pay almost any price for their favorite daily. This is the rationale behind recent price hikes (see Cracking the Paywall). In Europe, I see all quality papers priced at 2€ within two to three years and I don’t believe such prices will accelerate reader depletion. Holding print prices up might be critical for survival.

On this topic, this is the email I received from Jim Moroney, publisher and CEO of the Dallas Morning News:

  • On May 1, 2009, The Dallas Morning News raised home delivery rates across the board by 40%. The price increase was even greater for the most geographically distant delivery.
  • We doubled daily single copy price to $1.00 and Sunday single copy price to $3.00 in two steps each.
  • Today we yield 93% of our retail rate, i.e., we are doing very little discounting. Lots of papers claiming to raise their home delivery rates and then turnaround and offer discount after discount. If the most valuable asset we have is the content we originate, as an industry, why do we keep deeply discounting it as if it were damaged goods?
  • Our home delivery rate is $36.95 per month, making it the third highest priced metro in the U.S. after NYT and Boston Globe.
  • In March, we made all access to what we distribute digitally paid access.
  • Website, iPad and smartphone are $9.99 each per month. All digital access is $16.95 per month.
  • So there is a lowly metro doing something akin to the NYT and FT.

Also, because of its unique advertising value proposition, I won’t sell short print media. In a nutshell, no one expects a Dior campaign to look as gorgeous on the screen of a computer or on the 4-inches display of a smartphone as it does on quality print. For such high-priced ads, print is likely to remain vastly superior for a long time — and should therefore be part of any well-rounded business strategy.

Coming back to digital media, in my view, a mature market also means a clean one. Today, many news websites URLs have very little to do with editorial. In places, the number of URLs whose only purpose is to gather “eyeballs” represents as much as 30% to 40% of all page views.
Look at what Le Monde does: when you look at a web page through Readability (an app that basically extracts relevant text), you see every verb appear in red and linking to… Le Monde’s grammar conjugation service:

That’s good for SEO shenanigans. Nothing is too petty to churn audience numbers (and Le Monde is no worse than its competitors)

To sum up, here is why I think prices on the internet are likely to go up in a near (2-3 years) future :

  • a cleaner internet will yield a much better performance advertising-wise than it does today,
  • inventories will have to be limited (read: closed down). No market whatsoever can withstand the type of unlimited supply we see today on the web. In our current oversupply situation, we often see more than half of the pages sold for a CPM below one dollar or euro,
  • as discussed before, we can expect a strong adjustment on ad spending vs. time spent, it will benefit digital media,
  • the ad market suffers greatly from current economic conditions (debt,  political tensions abroad, elections in several countries, uncertainties everywhere…) Those won’t last forever.

My mention of a $20 CPM sounded overly optimistic to many readers? It is by today’s standards, no doubt. But once a number of adverse factors are attended to, I think the $20 assumption will hold (and, by the way, I’m referring to revenue per page, not per module).

2 / Subscription revenue. Many are challenging my 10% transformation rate (one reader out of ten willing to pay $10 a month in my model.) Objection taken. Again, my projections go beyond today’s deflated market. It will take a while to get to 10% when a large site such as the New York Times is at 1% or 2%. And converting readers to pay something/somehow will require imagination beyond single pricing; I’m told large newspapers charging $15 or $25 a month are considering low-cost subscriptions plans as low as $5 per month to capture young readers and boost their conversion rate. From an editorial product perspective though, I’m a bit skeptical. What will such a downgraded offer look like: stricter paywall; low-cost apps?

3 / Mobile apps. Although I explored this issue in previous Monday Notes (see The Capsule’s Price and Mobile First, and a Mag), I should have been more forthcoming about mobile apps. My belief is this: overtime, thanks their greater ability to carry subscriptions and high yield ads, apps, not web sites, will be the path to decent ARPUs.

I will acknowledge another misconception in my plans and leave it to Vin Crosbie, new media professor at the S.I. Newhouse School of Public Communications at Syracuse University, New York, who commented my piece in the Guardian.

Here’s the crux: Even if Federic’s model could work for a national daily, will it scale to work for the average newspaper? Maybe NYT, WSJ, or USAToday could eek out 2% profit margin using it, but what of the other 1,412 daily newspapers in the U.S., the average-sized of which is 18,000 daily circulation? Do the math. [...] Look at the paltry signup rate NYT has achieved. Scaled to a 18,000 circulation daily, NYT’s results would mean less than 180 paying online subscribers.

Vin is basically right. One of the tragedies of the digital media model is this: unlike the newspaper model, it doesn’t scale down well. There are plenty of local web sites faring well, but none comes close to supporting a 200 staff newsroom costing $25 or $27 million to operate.

frederic.filloux@mondaynote.com